Charles Mac Naughten Sir Francis Beaufort Palmer.

Company precedents for use in relation to companies: subject to ..., Volume 2 online

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Aots, 1870 and 1871 ; and those Acts and this Act may be dted together as ^* The
lafe Assurance Companies Acts, 1870 to 1872 ; " and' this Act may be dted as
« The Life Assurance Companies Act, 1872."



first Schednle. (Sects. 5, 6.)

Mule for valuing an Annuity,

An annuity shall be valued aooording to the tables used by the company which
granted such an annuity at the time of granting the same, and where such tables
cannot be ascertained or adopted to the satisfaction of the Court, then according to
the table known as the Gkyremment Annuities Experience Table, interest being
reokoned at the rate of four per centum per annum.

Mule for valuing a Policy,

The Talue of the policy is to be the difference between the present value of the
reversion in the sum assured on the decease of the life, including any bonus or
addition thereto made before the commencement of the winding-up, and the present
value of the future annual premiums.

JxL calculating such present values the rate of interest is to be assumed as being
four per centum per annum, and the rate of mortality as that of the tables known
as the Seventeen Offices' Experience Tables.

The premium to be calculated is to be such premium as according to the said rate
of interest and rate of mortality is sufficient to provide for the risk incurred by the
office in issuing the policy, exclusive of any addition thereto for office expenses and
other charges.

Second Sohednle. (Sects. 5, 6.)

Where an assurance company ia being wound up by the Court or subject to the
supervision of the Court, the official liquidator in the case of all persons appearing
by the books of the company to be entitled to or interested in policies granted by
such company, for life assurance, endowment, annuity, or other payment, is to
ascertain the value of such poUoies, and give notice of such value to such persons,
and any person to whom notice is so given shall be bound by the value so ascer
tained unless he gives notice of his intention to dispute such value in manner and
within a time to be prescribed by a rule or order of the Court.

The right of the policy-holder or annuitant to prove is clear. RoWs case, 9 Eq.
716 ; Wilson's case, 9 Eq. 721.

And it is not affected by non-payment of a premium payable after the commence-
ment of the winding-up. Cook^s Policy, 9 Eq. 703.

Where the life drops before proof, the proof may be for full amount. Wilson's
case, 9 Eq. 721 ; Macfarlane's ease, 17 C. D. 337.

A participating policy-holder cannot prove in respect of his claim of future profits,
BoWs case, 9 Eq. 717.

A policy-holder whose policy has matured before the winding-up has no priority
over the holders of current policies. BelVs case, 9 Eq. 706.

Andprimd facie a policy, even though made payable out of or expressed to be
charged on the assets, does not amount to an equitable assignment.



466



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45& WINDING-UP BY THE COURT. [ChAP. XXXVII,

As to set-off against mortgagees, see Ex parte Priee, 10 Gh. 648 ; Sovertiffn Lift
Y. Doddy (1892) 2 Q. B. 673.

Marine.

The same principles applj as in tlie case of fire x>oliciee. See tupra.
As to the names of the underwriters being specified in the poUcj, see Ex parU
Eargrove, 10 Ch. 642.
As to mutual insurance, see Lion Mutual y. Faeker, 12 Q. B. D. 176.

Pbefebential Payments.

As to Obown Debts, see supra^ and the Acts of 1888 and 1897, infra, p. 498.

As to rates, see note to Form 392c.

Salaries and wages, see below.

As to execution creditors, see Chaps. XXXIII. and XXXIV.

As to secured creditors, see pp. 467, 460.

As to landlords, see Chap. XXXV.

As to expenses incurred in the winding-up, see Chaps. XXTV. and XLVil.

In the course of a winding-up, debts are from time to time incurred which ought
to be paid in full, e,p. , costs, valuations, repairs, rent, materials supplied, &c. Under
the old practice, where no general order had been made giving the requisite
authority, the liquidator from time to time applied for liberty to pay such debts.
In many cases no order was drawn up on such application, but the summons was
indorsed with a note that the liquidator might pay, and was to be allowed the
amount in his next account.

Under the present practice the liquidator need not go to the Court ; in practice
the official r^peiver, when liquidator, pays these sums, but outside liquidators mast
apply to the Board of Trade in the ordinary way for cheques to pay off the
amounts.

In cases where difficult questions are involved, an application for the direction of
the Court should be made under sect. 23 (4) of 1890.

As to payment of rent in full, see Chap. XXXV.

Bates. See supra, note to Form 392c.
Eeot. See Chap. XXXV.

Eejeotion.

As to liquidator's power of rejection, see Rr. 107 and 117 of 1903.
As to official receiver*s x>ower, see Br. 112, 116 of 1903.

Salaries and Wages.

As to limited priority given to salaries, see the Act of 1888, note to Form 451b.

It has been held that where the articles require a director to be a member, he
cannot prove for his remuneration in competition with the other creditors. Ex parte
Cannon f 30 C. D. 629. It has been doubted whether this case can stand with Dale
V. Flantj 43 C. D. 255. This case, however, could not overrule it, but a micro-
scopical difference in the facts is now held sufficient to distinguish it. See Ex parte
Beckwith, (1898) 1 Ch. 324 ; u4 1 Biscuit Co., W. N. (1899) 115.

PrimA fac'xe^ a director is not entitled to remuneration. Dumtan y. Imperial Oae,



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CEEDITORS.

3 B. & A. 126. But if ihe articles fix the remimeratioii, the directors can prove, as
also where they are to receive such sums as the company in general meeting may
fix, and the company has fixed the amount. Melhado v. Forto Alegre Co,^ L. B. 9
C. P. 603 ; OHon v. Cleveland Fire Bricl', 3 H. & 0. 868 ; Caridad Copper Mining Co.
V. Swallow, (1902) 2 K. B. 44.

A director who has not talcen up his qualification may nevertheless he entitled to
lus remuneration. Salton v. New Beeston Cycle Co., (1899) 1 Ch. 775.

The same case shows that under an ordinary form of article as to remuneration
for the year the remuneration is not apportionahle in respect of part of a year.
And see Central de Kaap Gold Mines, W. N. (1899) 216, 236; 69 L. J. Ch. 18;
MeConnelVs Claim, (1901) 1 Ch. 728 ; Imnan v. Ackroyd, (1901) 1 K. B. 613 ; Shawi
Bryant % Co., W, N. (1901) 124. Quare whether the Court should oot in such
cases imply apportionability. In Swahey v. Port Darwin Gold Mining Co,, 1 Meg.
386, Lord Halsbury, L.C., said: **Both parties must have contemplated that as
this was a service for hire and reward, a proportionate part of the remuneration
agreed upon should be paid if the service was determined at an earUer period than
the full year," yet the clause there was in these terms, "the directors shall be
entitled to receive, by way of remuneration, out of the funds of the company in
each year the sum of 200/., and the chairman of the board an additional sum of 100/.
per annum." Remuneration as receivers and managers will not aifect the right to
remuneration as directors up to the commencement of the winding-up. South
Western of Venezuela {Barquisimeto) B. Co., (1902) 1 Ch. 701.

As to managers and agents, arrears of salary and commission due at the com-
mencement of the winding-up may be proved for. And where the appointment is
for a term of years, proof can be made for a sum equal to the salary for the residue
of the term, less an allowance for the probability of other employment. Telland's
ease, 4 Eq. 350 ; Re Maclure, 6 Ch. 737. But he cannot prove for future commis-
sion : S. C. As to publication of winding-up operating as a discharge of employ^,
Bee Chapman's ease, 1 Eq. 346 ; MacDowalVs case, 32 C. D. 366 ; Reed v. Explosives^
19 Q. B. D. 264. As to workmen's wages, see pp. 471, 493.

Seotjred Ceeditoes.

Sect. 10 of the Judicature Act, 1876, applies to insolvent companies in winding-
up the bankruptcy provisions as to secured creditors. Re Leng, (1896) 1 Ch. 662 ;
Be Whitaker; Whitaker v. Fakner, (1901) 1 Ch. 9, overruling the narrower construc-
tion adopted in Re Maggi, 20 C. D. 646.

Sect. 9 of the Bankruptcy Act, 1883, says that its provisions are not to ** affect
the power of any secured creditor to realize or otherwise deal with his security in
the same manner as he would have been entitled to realize or deal with it if this
section had not been passed."

Sect. 168 of the Bankruptcy Act, 1869, defines a *' secured creditor" as ''a
person holding a mortgage, charge, or lien on the property of the debtor, or any
part thereof, as a security for a debt due to him from the debtor." See further, as
to secured creditors in bankruptcy, Wms. on Bkcy., pp. 60 — 63.

A creditor of the company is a ** secured creditor " if he has any security for his
claim upon the property of the company.

Thus, a creditor who holds a mortgage or charge from the company is clearly a
secured creditor, for sect. 46 of the Bankruptcy Act, 1883, as to executions not
completed before the receiving order, doeB not apply in winding-up. Withemsea
Brickworks Co., 16 C. D. 337 ; Ftatt v. Inman, 43 C. D. 176.

So is a creditor who has obtained, and before the commencement of the winding-
up served, a garnishee order nisi {Stanhope Co.j 11 C. Biv. 160; national United



457



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458 WINDING-UP BY THE COUKT. [ChAP. XXXVII.

Invettment Corp., (1901) 1 Ch. 950), or has obtained and served a charging order on
shares {Haley v. Barry^ 3 Gh. 452) ; or, as regards land, has obtained the appoint-
ment of a receiver by way of equitable execution. Ex parte Evant, In re Watkintf
13 C. D. 252 ; Anglo-Italian Bank v. Davies, 9 G. D. 275. As to estate in remainder,
see Be Harrison and Bottomley, (1899) 1 Gh. 465.

But, strange to say, it would seem from the cases following that the appointment
of a receiver of chattels by way of equitable execution does not make the creditor a
secured creditor. In re Diekinaon, Ex parte C?tarrington, 22 Q. B. D. 187 (C. A.
1888) ; Be Fottt, (1893) 1 Q. B. 648 ; CroelMw v. Lyndhuret Ship Co., (1897) 2 Oh.
154. It is not easy to reconcile all these decisions with the principles laid down in
Levasaeur y. Mason and Barry, (1891) 2 Q. B. 73. See further. Chap. TTyTY.

As to Scotch arrestments giving security, see Queeneland Mercantile Co., (1892)
1 Gh. 219 ; West Cumberland Co., (1893) 1 Gh. 713.

And a landlord or other person having a right of distress who has levied before
the commencement of the vnnding-up is a secured creditor.

And where a distress is not levied before the commencement of the winding-up
the existence of the right of distress does not in England make the landlord or
other person who has such right a secured creditor. Thotnas y. Patent Liomte Co.^
17 G. D. 250. See Warner Co., Ld., (1891) 1 Gh. 305, as to Scotland.

As to plaintiff becoming a secured creditor and proving when defendant pays
money into Gourt and becomes bankrupt, and the trustee refuses to be made a
party, see Ex parte Navalckand, (1897) 2 Q. B. 516.

Payment into Gourt for liberty to defend makes plaintiff secured in bankruptcy.
Be Ford, (1900) 2 Q. B. 211.

The creditor is not a secured creditor unless the security is on the property of the
company or a part thereof. Ex parte Bennet, 3 Atk. 528 ; Ex parte Caldeeott, 26
G. Div. 720 ; Coupland's case, 5 Gh. 167 ; West Biding Union Bank, 19 0. D. 109 ;
B$ HalUtt, (1894) 2 Q. B. 256.

A creditor of a company whose debt is guaranteed by some third party is not to
be considered a secured creditor and bound to value the guarantee as a security even
when the surety holds a counter security from the company by way of indenmity.
Midland Banking Co. v. Chambers, 4 Gh. 398 ; HarmanU ease, 18 S. J. 25 ; Skefield
Bank v. Clayton, (1892) 1 Gh. 621.

As a general rule, the holder of bills of exchange on which a company is liable is
not to be considered a secured creditor, although other persons may be liable
thereon. Ex parte Schojleld, 12 G. D. 337 ; Be HaUett, ubi supra,

A secured creditor is not bound to come in and prove. He may "pnlet to rest on
his security.

In the case of a solvent company, he may prove for the full amount of his debt,
retaining his security until payment. But in the case of an insolvent company,
sect. 10 of the Judicature Act, 1875, renders the bankruptcy rules applicable (see
supra, p. 439), and negatives the rule established in KeUock^s ease, 8 Gh. 769. And
until the contrary is proved, a company being wound up is to be reg^arded as
insolvent. Milan Tramways Co., 25 G. Div. 587.

In either case a secured creditor who comes in to prove must deduct what he has
realized before sending in his claim. Forwar '« ease, 5 Gh. 18 ; Leeches ease, 6 Gh.
388.

Under the bankruptcy rules, a secured creditor may (1) rely on his seoozity and
abstain from proving, or (2) may realize his security and then prove for the balance,
or (3) may surrender his security and prove for the full amount, or (4) may value
the security and prove for the balance. See Bankruptcy Act, 1883, Sohed. II.
9—16, supra; Ex parte National, ^e. Bank, Be Newton, (1896) 2 Q. B. 403; and
Wms. on Bkcy,, pp. 872—378.



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CBBDIT0B8. 459

Bat the rules do not applj in bankmptoj to a Becured creditor to the extent of
inaVing the seonrity liable to be redeemed at the value stated in his petition, i^
Vautin, Ex parte Saffery, (1899) 2 Q. B. 649.

A secured creditor -who mentions his security in his proof and states that it is
irorthless, does not omit to value his security within the meaning of the Bankruptcy
Act, 1883, Sohed. I. r. 10 (which is similar to Sched. I. r. 8 to tho Companies
(Winding-up) Act, 1890, as to which, see Chap. XVII.). Ex parte Fiera, infra.

Where a creditor omits to value his security by reason of eironeous information
1ea<^tng him to suppose it to be worthless, there is not an omission to value the
security which arises from inadvertence within the meaning of the Bankruptcy Act,
1883, Sched. I. r. 10. Ex parte Fiers, (1898) 1 Q. B. 627.

A secured creditor has, primd/aeis, a dear right to apply for and obtain leave to
bring, or proceed with, an action for enforcing his securities. David Lloyd ^ Co,,
6 C. Div. 339; Longdendale Co., 8 G. Div. 150; Joshua Stubbi ^ Co,, (1891) 1 Oh.
475 ; London, ^e. Hotel Co., (1892) 1 Ch. 639. And a receiver obtained by him will
not always be displaced in favour of the official receiver. Strong v. Carlyle Frees,
(1893) 1 Ch. 252 ; British Linm Co. v. South American, ^e, Co., (1894) 1 Ch. 108.
And see it{fra.

And very commonly a secured creditor applies in the winding-up for a declaration
of his rights, and a direction to the liquidators to realize the security, and pay him.

Where a creditor's security is realized in the winding-up, he is entitled to be paid
out of the proceeds his principal, interest and costs, subject only to the costs of the
realization. Marine Mansions Co., 4 Eq. 601. See also Oriental Motels Co., 12 £q.
126 ; Eegenfs Canal Co., 3 C. Div. 411.

And the Court will order the liquidator to give up possession to a receiver
appointed by the secured creditor. Henry Found, Son % Co., 42 C. Div. 402, and
Form 391, supra.

Sometimes the mortgagee sells, with or without the concurrence of the liquidator,
in exercise of a power of sale vested in him by the mortgage.

It is not necessary to obtain liberty to exercise the power of sale, although orders
giving such liberty have sometimes been made.

A secured creditor who realizes his security is entitled to apply the proceeds in or
towards payment of his principal, interest and costs. London, Windsor, ^. Co.,
(1892) 1 Ch. 639.

But he cannot, in the case of an insolvent company, apply the proceeds first in
payment of interest due after the winding-up, and then in reduction of principal,
and then prove for the balance of principal. Ibid. Where the interest exceeds
5 per cent, he may, notwithstanding sect. 23 of the Bankruptcy Act, 1890 {supra,
p. 452), pay such interest before proving. In re Fox and Jacobs, (1894) 1 Q. B. 438.

Not uncommonly an order for sale is made on the application of the liquidator,
and the mortgagee concurs and obtains payment out of the proceeds.

Orders directing preferential payment to be made to holders of mortgage deben-
tures and other secured creditors are not unconmion.

Where a company insures against accideuts, and becomes entitled under its
policy, and then goes 'into liquidation, the workman injured has a first charge on
the insurance money. Workmen's Compensation Act, 1897, s. 6.



Operation of Sect. 10 of the Judioatube Act, 1876.

It is to be observed that this section extends the bankruptcy proviDions not only
to the winding-up of insolvent companies, but also to the administration by the
Court of deceased insolvent debtors, and therefore, in considcriug whether certain



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460 WINDING-UP BY THE OOUET. [ChAP. XXXVII.

bankniptoy proyisionB are now applicable in winding-up, one miut have legaid to
the decisions as to whether those provisions are applicable in administration cases.

The cases show that, whether as regards winding-np or administration, the
operation of sect. 10 of 1875 is limited. For instance, sect. 32 of the Bankmptoj
Act, 1869, which, like sect. 40 of the Act of 1883, gave priority to local rates and
other debts, was held not to applj in winding-np. Albion SUel and Wire Co.,
7 C. D. 617 ; and sect. 40 itself was held not to applj in administration. Ms
Williamt, 36 0. D. 573. (See now as to winding-np, the Preferential Payments
Acts, 1888 and 1897.) The provisions of sect. 87 of the Bankraptoy Act, 1869,
depriving execution creditors of the fruits of execution on notice of an act of bank-
ruptcy within fourteen days after sale (see now sect. 1 1 (2) of the Bankruptcy Act,
1890), were held not to apply in winding-up. Wtthertma Briektoorkty 16 C. D. 337 ;
and compare WaCkifu y. Barnard, (1897) 2 Q. B. 521.

And sect. 45 of the B. A. 1883, restricting the rights of execution creditors,
was held not to apply in administration. Fratt v. Inman, 43 C. D. 175 ; Hatluek
T. Clark, (1898) 2 Q. B. 281 ; (1899) 1 Q. B. 699. Nor does the order and dispooi-
tion rule in bankruptcy (now B. A. 1883, s. 44) apply in vdnding-up. CrutnUn
Viaduet Work» Co,, 11 C. D. 755 ; GorHnge v. Irtcell India Mubber Work; 84 C. D.
128. The bankruptcy provision giving a landlord priority for a year's rent (now
B. A. 1883, s. 42) does not apply in winding-up. Thomat y. FtiUnt LumiU Co.y 17
0. D. 250.

But the mutual credit clause in bankruptcy applies both to winding-up ( Jf^frMy
Steel and Iron Co, v. Naylor, 9 App. Cas. 434) and to administration ( Watkim t.
Lindsay, W. N. (1898) 22).

And the bankruptcy rules (see now B. A. 1883, Sched. II. rr. 9—16) as to a
yaluation of the security of a creditor were held to apply in administration. Be
Hopkins, 18 C. D. 370. Fry, J., held that in administration sect. 10 of 1875
affected only the rights of the class of secured creditors as conflictLng with those of
the class of unsecured creditors, and did not affect the rights inter te of the members
of those dasses. Be Maggi, 20 C. D. 545. See also Be Gould, 19 Q. B. D. 92, as to
sect. 47 of the B. A. 1883 (voluntary settlements), not applying in administration.

But Be Maggi has now been overruled, and the rights of creditors inter te are held
now to be governed by the bankruptcy law, Be Whitaker, Whitaker t. P^Ismt,
(1901) 1 Ch. 9 ; and see i2<? Leng, (1895) 1 Ch. 652.

And see " Fbaudttleht Pbxfbbbhob," Chap. XLIV.



Debentures and Debenture Stock.

Unsecured [Noib. — The fmbject of debentures and debentore stock is more fuUy dealt with

debentures. in Part III. ; but, having regard to the practice direction of Nov. 1895, infra, and
the fact that, after a winding-up order, pending debenture actions are transfened
to one of the winding-up judges, the subject cannot be entirely passed over in this
volume. Only mortgtigpe debentures and debenture stock— that is, debentures and
debenture stock secured by mortgage or charge upon the property of the company
or some part thereof— are here dealt with. The holders of debentures and deben-
ture stock not so secured stand in the position of unsecured creditors.]

When a company goes into liquidation, it is generally found to have issued
debentures or debenture stock, or both.

Debentures and debenture stock are in most cases secured by mortgage or charge
upon the whole undertaking of the company and its uncalled capital. The extent
of the security must be ascertained from the instmments constituting it.
Liquidator's The liquidator should carefully inveetigate the position of the security, inasmuch



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CREDITOES. 461

as any defect in it would ennre for the benefit of the nnsecnred creditors of the investigation
company. Accordingly he should look into the following matters : — duties.

1. Was the issue of the debentures or debenture stock within the power of the

company P

2. Was the issue within the power of the directors, and was that power regpilarly

exercised P

3. Were the debentures issued at a discount, and was there power thus to issue

themP

4. Were the debentures or debenture stock or any of them issued within three

calendar months before the commencement of the winding-up, and if so did
their issue constitute a fraudulent or imdue preference P
6. Haye the debentures or debenture stock deed been duly reg^tered under
sect. 14 of the 0)mpanie8 Act, 1900 P

6. What is the yalue of the property charged P Is there any marg^ for the

unsecured creditors ; if there be, is it an assured margin or only a specula-
tiye margin P

7. In the interest of the unsecured creditors, is it adyisable to pay off the deben-

tures or to pay the interest on the debentures or debenture stock, and to
obtain time to realize, or to procure from other sources an advance sufScient
to pay them ofP, or is it wiser to leave the security holders to realize their
security as best they can P

8. If the debentures include uncalled capital, was there power to charge that

in the articles, and has it been effectually charged P

9. Would it be expedient to formulate a scheme of arrangement imder the Joint

Stock Companies Arrangement Act P (See Section IV., p. 838.)
The liquidator in considering these questions should act in an impartial manner

(aupra. Chap. XXI.), and unless he believes that there is reasonable gfround for

impeaching the securities, he should facilitate in every reasonable way the exercise

of the rights incident thereto.

With reference to question 6, it must be borne in mind that where the debenture Release of

covers the whole of the assets, and the assets are shown to be insufficient to pay the liquidator's

debt, the Court has power, on the application of the debenture holders, to direct "fiT***®-

the liquidator to release the equity of redemption.

It may be useful here to refer, as regards some of the principal matters which

arise, to the chapters of Part III. of this work, in which they are fully dealt with : —

Agreed to be issued, Chap. XXII. Possession of receiver, Chap. XLV.

Bearer debentures. Chap. V. Priorities, Chap. XVIII.

Bills of Sale Acts, Chap. XXIV. Provisional certificates, Chap. XXXVII.

Books, charging, Chap. X. Rates, Chap. LXVI.

Borrowing powers, Chap. IX. Receivers, Chap. XLV.

Compromises, Chap. XIX. Registered Debentures, Chap. IV.

Deposit, Chap. XXVII. Registration, Chap. XXIV.

Discount, Chap. XXVI. Sale, Chap. LXX.

Enforcing, Chap. XLV. Set-off, Chap. LXI.

Floating security. Chap. XI. Trust deed. Chap. XL.

General charge, Chap. XI. Uncalled capital, Chap. IX.

Pari passu clause, Chaps. IV., XVHI. Validity of borrowing. Chap. IX.

As to debentures given by ^* one man " companies, see Salomon v. SaiomoH, (1897) *' One man "
A. C. 22; Seliffman v. Prince ^ Co., (1895) 2 Ch. 617. companies.

Sect. 10 of the Judicature Act has not rendered the bankruptcy rules as to order Order and
and disposition applicable. Cnmlin Viaduct Works Co., 11 CD. 756; Qorringey. disposition. .
Irwell Indiarubber Works, 34 C. D. 128.



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462



WINDING-UP BY THE COURT. [ChAP. XXXVII-



Fraudulent
preference.



Majority
clauses.



Beoistbation.

Delj^turee and debenture stock are not invalidated bj non-registration in the
register of mortgagee of a company required to be kept by sect. 33 of tbe Act of
1862 {General South American Co.^ 2 C, D. 337), and even where the mortgagee is
director or other officer of the company, it is now settled that non-registration



Online LibraryCharles Mac Naughten Sir Francis Beaufort PalmerCompany precedents for use in relation to companies: subject to ..., Volume 2 → online text (page 60 of 152)